Cisco Systems, Inc.
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| Item 1. | Business |
General
Cisco designs and sells a broad range of technologies that help to power, secure, and draw insights from the Internet. We are incorporating artificial intelligence (AI) into our product portfolios across networking, security, collaboration and observability as well as integrating our products more tightly together. We are simplifying how our technology is delivered, managed and optimized and helping customers maximize the business value of their technology investments.
We conduct our business globally and manage our business by geography. Our business is organized into the following three geographic segments: Americas; Europe, Middle East, and Africa (EMEA); and Asia Pacific, Japan, and China (APJC).
Our products and technologies are grouped into the following categories: Networking, Security, Collaboration and Observability. In addition to our product offerings, we provide a broad range of services over the lifecycle of our products, including technical support services and advanced services. Our customers include businesses of all sizes, public institutions, governments, and service providers, including large webscale providers. These customers often look to us as a strategic partner to help them use information technology (IT) to differentiate themselves and drive positive business outcomes.
We were incorporated in California in 1984 and reincorporated in Delaware in 2021. Our headquarters are in San Jose, California. The mailing address of our headquarters is 170 West Tasman Drive, San Jose, California 95134-1706, and our telephone number at that location is (408) 526-4000. Our website is www.cisco.com. Through a link on the Investor Relations section of our website, we make available the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC) at sec.gov: our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. All such filings are available free of charge. The information published on our website, or any other website referenced herein, is not incorporated into this report.
Strategy and Priorities
In today's digital-first world, businesses and organizations globally are deploying technology to pursue their strategic objectives, from accelerating growth to enhancing operational efficiency and fostering innovation. Our strategy is to securely connect everything to make those desired outcomes possible.
Our customers have three key priorities in this dynamic environment: i) to build modern infrastructure; ii) to protect against the cyber threats of today and tomorrow; and iii) to harness the power of AI and data. Cisco is at the forefront of this evolution, developing innovative solutions that leverage advanced AI to deliver more valuable outcomes for our customers.
Modern Infrastructure
In an increasingly digital and connected world, where each new connection to the Internet puts more demand on the network, our customers are investing in resilient, adaptable infrastructure to quickly respond to market changes and the demands of their own customers. Now more than ever it is crucial for businesses to remain competitive while managing resource constraints. Our customers continue to focus on modernizing their infrastructure with a focus on speed, agility, productivity, innovation and energy efficiency.
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Cybersecurity
With the rapid growth in AI, modern applications, hyper-distributed architecture and increasingly sophisticated cyberattacks, customers see cybersecurity as a top priority. Our differentiated security strategy is based on three pillars: moving from point solutions to a platform comprehensively integrated with the infrastructure; infusing security into the fabric of the network; and harnessing the depth and breadth of telemetry data from Cisco and with our acquisition of Splunk Inc. (“Splunk”) to prevent, detect, and respond to sophisticated attacks.
AI and Data
AI represents a generational shift in technology and the advent of AI agents is driving an order of magnitude higher requirement for network connectivity. We provide network infrastructure to power AI training and inference workloads for both webscale providers and enterprises. We help to scale our customers’ network infrastructure with high-density routers and switches, improved network management, and high-performance optics. We are reinventing data center operations for our customers by simplifying the configuration, monitoring, and maintenance of fabrics, compute, networking and storage.
We can help give customers visibility across the network, security solutions, applications and their own business data. With this breadth and scale of data, we can help deliver differentiated insights and context to customers, leading them to more informed proactive decisions and better business results.
These three customer priorities drive our innovation and technology, making them our priorities as well. To help deliver on them, we are bringing together the power of our portfolio, which we refer to as One Cisco, which provides three key outcomes to our customers: i) AI-ready data centers, ii) future-proofed workplaces, and iii) digital resilience.
AI-Ready Data Centers
We are transforming data centers to power AI workloads anywhere. Whether customers need to modernize parts of their existing infrastructure or power new, massive AI workloads, Cisco brings together a wide array of infrastructure (across networking, compute, storage, and silicon) with unified management across traditional and AI workloads, and security from on-premise to cloud to power AI-ready data centers.
Future-Proofed Workplaces
Cisco helps deliver "future-proofed" workplaces, modernizing how people and technology work and serve their customers. This includes environments ranging from factory floors with plant workers and robots to hospitals with healthcare workers, as well as to social workers and salespeople on the move. For secure campus and branch networking, we offer a flexible range of solutions that help ensure secure, reliable connections for users and devices. Our smart building technology turns network devices into sensors for enhanced intelligence and control of physical spaces. To support productivity, we provide collaboration devices and software to enable collaboration no matter where people work.
Digital Resilience
We help to keep the data center, workplace, and entire IT environment securely up and running in the face of any disruption. Our network assurance capabilities, powered by ThousandEyes, are integrated throughout our portfolio. This technology helps ensure seamless connectivity and optimal digital experiences across cloud, Internet, and enterprise networks, for the delivery of applications and services. Our observability solution monitors the entire enterprise to help prevent downtime and improve experiences across networks, infrastructures, and applications. Additionally, Cisco provides robust security measures for threat prevention, detection, investigation, and response for organizations of any size and security maturity.
Cisco enables enterprises and service providers to deliver highly secure connectivity from workplaces to data centers worldwide. Our strength lies in our ability to deliver unified architecture with integrated, end-to-end solutions to help simplify complex challenges. These capabilities are accelerated with Cisco AI, enhancing outcomes for customers globally.
For a discussion of the risks associated with our Strategy and Priorities, see “Item 1A. Risk Factors,” including the risk factor entitled “We depend upon the development of new products and services, and enhancements to existing products and services, and if we fail to predict and respond to emerging technological trends and customers’ changing needs, our operating results and market share may suffer.” For information regarding sales of our major products and services, see Note 19 to the Consolidated Financial Statements.
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Products and Services
Our products and services are grouped into the following categories:
Networking
Our networking business is built on a foundation of industry-leading technologies, including switching, routing, wireless, and servers, offered through a comprehensive suite of both hardware and software solutions. This portfolio, which features software licenses and software-as-a-service (SaaS) offerings, empowers customers to build, automate, modernize, and transform their network infrastructure to meet the demands of a rapidly evolving digital landscape. A central pillar of our networking strategy is the seamless convergence of our on-premise solutions with our cloud-managed offerings. By integrating these capabilities across our networking portfolio, we aim to deliver continuous value to our customers through enhanced flexibility, scalability, and operational efficiency. This unified approach positions us to address the diverse needs of businesses as they transition to hybrid and cloud-first environments.
Our switching portfolio encompasses campus switching as well as data center switching offerings. Our campus switching offerings provide the foundation for converged data, voice, video, and Internet of Things (IoT) services. These switches offer enhanced security and reliability and are designed to scale efficiently as our customers grow. Within campus switching, our Catalyst 9000 family of switches includes hardware with embedded software, along with a software subscription referred to as Cisco DNA. Cisco DNA provides automation, analytics and security features which can be centrally monitored, managed, and configured. Also, within campus switching we have a range of Meraki cloud-managed switches for customers who prefer ease of management in lean-IT environments. Our switching portfolio now also includes the newly launched Cisco Smart Switches — Cisco 9350 and Cisco 9610— which represent the next generation of enterprise networking. These switches are AI-ready with advanced telemetry and assurance capabilities. They are built on Cisco Silicon One (which is our single, unified, and scalable networking silicon architecture) and are equipped with quantum-resistant security and post-quantum cryptography to protect against future threats. They also offer flexibility for one hardware to be managed via either the Cisco Catalyst Center or Meraki Dashboard user interface.
Our data center switching offerings, led by the Nexus 9000 series, provide the foundation for mission critical data centers with high availability, scalability, and security across traditional data centers and private and public cloud data centers. We continue to add greater visibility and analytics across our networks and applications, enabling us to deliver better experiences for our customers. During fiscal 2025, we introduced the Cisco N9300 Series Smart Switches with a new class of intelligent networking silicon alongside embedded Data Processing Units (DPUs), representing our new vision for AI data center designs. Complex data processing tasks can be offloaded to the DPUs on the switch to improve both network architecture and the security posture. Cisco Hypershield, our cloud-native and AI-powered approach to highly distributed security for AI-scale data centers that is built into the fabric of the network, is the first service offering available embedded on these new switches. This helps to narrow the gap between security and networking layers by converging them into a single solution.
The Internet Infrastructure portion of this portfolio includes AI Infrastructure solutions for service provider customers, including our webscale customers. We are focused on transforming connectivity to the Internet and the cloud environment by efficiently meeting the growing demand for low-latency and higher speeds. Our routed optical networking systems and our pluggable optic solutions allow us to transform the economics of building and operating networks for our service provider customers. Our Cisco 8000 series routers, which are based on Cisco Silicon One, provide broad capacity in high-density designs, allowing our customers to reduce operational footprints, lower carbon emissions, and transition to more efficient network architectures.
We also have enterprise routing solutions which interconnect public and private wireline and mobile networks, delivering highly secure and reliable connectivity to campus, data center and branch networks. These offerings are designed to meet the scale, reliability, and security needs of customers of any size.
Our wireless solutions deliver robust indoor and outdoor coverage, supporting seamless roaming for voice, video, and data applications. With a product portfolio that includes both on-premises and cloud-managed wireless access points and controllers, we provide customers with a powerful and intuitive converged access solution when paired with our switching portfolio.
Security
Security is at the core of our business strategy, reflecting our commitment to addressing the evolving needs of organizations of every size across industries. Our security portfolio spans Network Security, Identity and Access Management, Secure Access Service Edge (SASE), and Threat Intelligence, Detection, and Response (TIDR) solutions. We are dedicated to continuous innovation, with significant investments in cloud-based security, AI-driven threat detection, and end-to-end security architectures designed to help customers proactively safeguard their most critical assets. In the third quarter of fiscal 2024, we acquired Splunk, a recognized leader in security analytics and observability. The Splunk platform and security offerings significantly strengthen our TIDR capabilities. We have been integrating Cisco Extended Detection and Response (XDR) with
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Splunk Enterprise Security, to create a unified and highly effective solution to help prevent, detect, and respond to sophisticated cyber threats. We are also accelerating the expansion of our SASE architecture, delivering a seamless combination of network and security functionality through a single, cloud-native platform. Our security offerings also include Cisco Hypershield, our cloud-native, AI-powered approach to highly distributed security for AI-scale data centers that is built into the fabric of the network. Our security strategy positions us well to capture growing market demand for comprehensive, scalable, and integrated security solutions.
Collaboration
Our Collaboration portfolio consists of our Webex suite, collaboration devices, Contact Center and Communication Platform as a Service (CPaaS) offerings. These offerings consist of software, including perpetual licenses and subscription arrangements, as well as hardware. Our objective is to create more inclusive and engaging employee and customer experiences by providing technology that enables distributed teams to collaborate effortlessly. We offer end-to-end collaboration solutions that can be delivered on-premises, from the cloud, or within hybrid cloud environments. AI and machine learning capabilities are embedded across the Webex portfolio to help improve productivity. Our CPaaS is a cloud communications platform that integrates communication channels and existing back-end business systems to help enable the orchestration and automation of all customer and employee interactions.
Observability
Observability consists of our network assurance, monitoring and analytics and observability suite offerings. These offerings are designed to bring together and provide end-to-end visibility of our customers' owned and unowned environments—including applications, networks, multi-cloud infrastructures and the Internet. With AI-driven insights at their core, our observability solutions help organizations see, understand and improve every digital experience, and help to ensure seamless connectivity and proactive issue resolution across complex, modern environments. ThousandEyes, our network assurance offering, deliver deep visibility and intelligence across network organizations, spanning both their internal infrastructure and external dependencies. Our Observability Suite—including Splunk Observability and AppDynamics—provides full-stack insights from infrastructure to application performance to digital experience, helping teams take decisive action to maintain service health and performance.
Services
In addition to our product offerings, we provide a broad range of technical support and professional services for our customers. We are incorporating AI into our services offerings, to enable customers to derive greater business value from their technology investments.
Cisco Technical Support provides customers with comprehensive assistance, including issue resolution, software support and hardware replacement, to help ensure Cisco products and networks operate efficiently and remain highly available. These services help customers protect their network investments, manage risk, and minimize downtime for systems running mission-critical applications.
We also offer a portfolio of professional services which includes planning, design, and implementation services, as well as high-value consulting services focused on aligning technology investments with business outcomes. We continually invest in our support and professional services by integrating AI and automation, and expanding beyond core networking to cover the areas of security and analytics in line with our strategy.
Customers and Markets
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Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .
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| Period ending |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Statements
This Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “momentum,” “seeks,” “estimates,” “continues,” “endeavors,” “strives,” “may,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below under “Part II, Item 1A. Risk Factors,” and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
OVERVIEW
Cisco designs and sells a broad range of technologies that help to power, secure, and draw insights from the Internet. We are incorporating artificial intelligence (AI) into our product portfolios across networking, security, collaboration and observability as well as integrating our products more tightly together. We are simplifying how our technology is delivered, managed and optimized and helping customers maximize the business value of their technology investments.
A summary of our results is as follows (in millions, except percentages and per-share amounts):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||
| April 25, 2026 | April 26, 2025 | % Variance | April 25, 2026 | April 26, 2025 | % Variance | |||||||||||||||||||||||||||||||||||
| Revenue | $ | 15,841 | $ | 14,149 | 12 | % | $ | 46,073 | $ | 41,981 | 10 | % | ||||||||||||||||||||||||||||
| Gross margin percentage | 63.6 | % | 65.6 | % | (2.0) | pts | 64.7 | % | 65.5 | % | (0.8) | pts | ||||||||||||||||||||||||||||
| Research and development | $ | 2,377 | $ | 2,335 | 2 | % | $ | 7,132 | $ | 6,920 | 3 | % | ||||||||||||||||||||||||||||
| Sales and marketing | $ | 2,855 | $ | 2,724 | 5 | % | $ | 8,607 | $ | 8,148 | 6 | % | ||||||||||||||||||||||||||||
| General and administrative | $ | 661 | $ | 739 | (11) | % | $ | 2,082 | $ | 2,286 | (9) | % | ||||||||||||||||||||||||||||
| Total research and development, sales and marketing, general and administrative | $ | 5,893 | $ | 5,798 | 2 | % | $ | 17,821 | $ | 17,354 | 3 | % | ||||||||||||||||||||||||||||
| Total as a percentage of revenue | 37.2 | % | 41.0 | % | (3.8) | pts | 38.7 | % | 41.3 | % | (2.6) | pts | ||||||||||||||||||||||||||||
| Operating income as a percentage of revenue | 25.0 | % | 22.6 | % | 2.4 | pts | 24.1 | % | 20.7 | % | 3.4 | pts | ||||||||||||||||||||||||||||
| Income tax percentage | 16.5 | % | 15.5 | % | 1.0 | pts | 15.1 | % | 5.8 | % | 9.3 | pts | ||||||||||||||||||||||||||||
| Net income | $ | 3,373 | $ | 2,491 | 35 | % | $ | 9,408 | $ | 7,630 | 23 | % | ||||||||||||||||||||||||||||
| Net income as a percentage of revenue | 21.3 | % | 17.6 | % | 3.7 | pts | 20.4 | % | 18.2 | % | 2.2 | pts | ||||||||||||||||||||||||||||
| Earnings per share—diluted | $ | 0.85 | $ | 0.62 | 37 | % | $ | 2.36 | $ | 1.91 | 24 | % | ||||||||||||||||||||||||||||
Percentages may not recalculate due to rounding.
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CISCO SYSTEMS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Three Months Ended April 25, 2026 Compared with Three Months Ended April 26, 2025
In the third quarter of fiscal 2026, we delivered strong revenue growth and profitability as we saw a continued positive demand environment. Total revenue increased by 12% compared with the third quarter of fiscal 2025. Within total revenue, product revenue increased by 17% and services revenue decreased by 1%. In the third quarter of fiscal 2026, total software revenue was $5.7 billion across all product areas and services, an increase of 1%. Total subscription revenue decreased 2%.
Total gross margin decreased by 2.0 percentage points. Product gross margin decreased by 2.5 percentage points, primarily driven by negative impacts from product mix and higher memory costs, partially offset by productivity improvements and lower amortization of purchased intangible assets. As a percentage of revenue, research and development, sales and marketing, and general and administrative expenses, collectively, decreased by 3.8 percentage points. Operating income as a percentage of revenue increased by 2.4 percentage points, primarily driven by revenue growth, partially offset by lower gross margin in the third quarter of fiscal 2026. Diluted earnings per share increased 37%, driven by revenue growth and operating margin improvement.
In terms of our geographic segments, revenue from the Americas increased by $1.2 billion, EMEA revenue increased by $0.3 billion and APJC revenue increased by $0.2 billion. From a customer market standpoint, we experienced product revenue growth across all of our customer markets.
From a product category perspective, the product revenue increase of 17% was driven by growth in Networking of 25%, particularly within our AI Infrastructure and Campus Networking solutions. We also saw product revenue growth in Observability of 3%. This growth was partially offset by a product revenue decline in Collaboration of 1%. Product revenue in Security was flat.
We continue to operate in a highly competitive and complex environment, especially as it relates to memory constraints and costs, and trade policy. Notwithstanding these challenges, we believe that we are making progress on our strategic priorities. We continue to invest in key priority areas with the objective of driving profitable growth over the long term. We remain focused on delivering innovation across our technologies to assist our customers in executing on their digital transformations and on accelerating innovation across our portfolio.
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CISCO SYSTEMS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Nine Months Ended April 25, 2026 Compared with Nine Months Ended April 26, 2025
Total revenue increased 10%, with product revenue increasing 13% and services revenue was flat. Total gross margin decreased 0.8 percentage points, primarily driven by negative impacts from product mix and to a lesser extent pricing, partially offset by productivity improvements and lower amortization of purchased intangible assets. As a percentage of revenue, research and development, sales and marketing, and general and administrative expenses, collectively, decreased by 2.6 percentage points. Operating income as a percentage of revenue increased by 3.4 percentage points, primarily driven by higher revenue, lower restructuring and other charges and lower amortization of purchased intangible assets, partially offset by lower gross margin in the first nine months of fiscal 2026. Diluted earnings per share increased 24%, driven by revenue growth and operating margin improvement, partially offset by the income tax benefit of $720 million we had in the first nine months of fiscal 2025.
Strategy and Priorities
In today’s digital-first world, businesses and organizations globally are deploying technology to pursue their strategic objectives, from accelerating growth to enhancing operational efficiency and fostering innovation. Our strategy is to securely connect everything to make those desired outcomes possible.
For additional discussion of our strategy and priorities, see Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended July 26, 2025.
Other Key Financial Measures
The following is a summary of our other key financial measures for the third quarter of fiscal 2026 (in millions):
| April 25, 2026 | July 26, 2025 | |||||||||||
| Cash and cash equivalents and investments | $ | 16,640 | $ | 16,110 | ||||||||
| Remaining performance obligations | $ | 43,462 | $ | 43,533 | ||||||||
| Inventories | $ | 4,708 | $ | 3,164 | ||||||||
| Total debt | $ | 31,303 | $ | 28,093 | ||||||||
| Nine Months Ended | |||||||||||||
| April 25, 2026 | April 26, 2025 | ||||||||||||
| Cash provided by operating activities | $ | 8,791 | $ | 9,959 | |||||||||
| Repurchases of common stock—stock repurchase program | $ | 4,604 | $ | 4,743 | |||||||||
| Dividends paid | $ | 4,894 | $ | 4,812 | |||||||||
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CISCO SYSTEMS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note 2 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended July 26, 2025, as updated as applicable in Note 2 to the Consolidated Financial Statements herein, describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The accounting policies described below are significantly affected by critical accounting estimates. Such accounting policies require significant judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements, and actual results could differ materially from the amounts reported based on these policies.
Revenue Recognition
We enter into contracts with customers that can include various combinations of products and services which are generally distinct and accounted for as separate performance obligations, resulting in contracts that may contain multiple performance obligations. We determine whether arrangements are distinct based on whether the customer can benefit from the product or service on its own or together with other resources that are readily available and whether our commitment to transfer the product or service to the customer is separately identifiable from other obligations in the contract. We classify our hardware, perpetual software licenses, and SaaS as distinct performance obligations. Term software licenses represent multiple obligations, which include software licenses and software maintenance. In transactions where we deliver hardware or software, we are typically the principal and we record revenue and costs of goods sold on a gross basis.
We recognize revenue upon transfer of control of promised goods or services in a contract with a customer in an amount that reflects the consideration we expect to receive in exchange for those products or services. Transfer of control occurs once the customer has the contractual right to use the product, generally upon shipment, electronic delivery (or when the software is available for download by the customer), or once title and risk of loss has transferred to the customer. Transfer of control can also occur over time for software maintenance and services as the customer receives the benefit over the contract term. Our hardware and perpetual software licenses are distinct performance obligations where revenue is recognized upfront upon transfer of control. Term software licenses include multiple performance obligations where the term licenses are recognized upfront upon transfer of control, with the associated software maintenance revenue recognized ratably over the contract term as services and software updates are provided. SaaS arrangements do not include the right for the customer to take possession of the software during the term, and therefore have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term as the customer consumes the services. On our product sales, we record consideration from shipping and handling on a gross basis within net product sales. We record our revenue net of any associated sales taxes.
Revenue is allocated among these performance obligations in a manner that reflects the consideration that we expect to be entitled to for the promised goods or services based on standalone selling prices (SSP). SSP is estimated for each distinct performance obligation and judgment may be required in their determination. The best evidence of SSP is the observable price of a product or service when we sell the goods separately in similar circumstances and to similar customers. In instances where SSP is not directly observable, we determine SSP using information that may include market conditions and other observable inputs.
We assess relevant contractual terms in our customer contracts to determine the transaction price. We apply judgment in identifying contractual terms and determining the transaction price as we may be required to estimate variable consideration when determining the amount of revenue to recognize. Variable consideration includes potential contractual penalties and various rebate, cooperative marketing and other incentive programs that we offer to our distributors, channel partners and customers that we sell to directly. When determining the amount of revenue to recognize, we estimate the expected usage of these programs, applying the expected value or most likely estimate and update the estimate at each reporting period as actual utilization becomes available. We also consider the customers’ right of return in determining the transaction price, where applicable. If actual credits received by customers under these programs were to deviate significantly from our estimates, which are based on historical experience, our revenue could be adversely affected.
See Note 3 to the Consolidated Financial Statements for more details.
Inventory Valuation and Liability for Purchase Commitments with Contract Manufacturers and Suppliers
Inventory is written down based on excess and obsolete inventories, determined primarily by future demand forecasts. Inventory write-downs are measured as the difference between the cost of the inventory and net realizable value, based upon assumptions about future demand, and are charged to the provision for inventory. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
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CISCO SYSTEMS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
We record a provision for firm, noncancelable, and unconditional purchase commitments with contract manufacturers and suppliers for quantities in excess of our future demand forecasts consistent with the valuation of our excess and obsolete inventory. Both provisions are a component of cost of sales.
Our total provisions for inventory and the liability related to purchase commitments with contract manufacturers and suppliers were $187 million and $459 million for the first nine months of fiscal 2026 and 2025, respectively. If there were to be a sudden and significant decrease in demand for our products, or a higher incidence of inventory obsolescence because of rapidly changing technology or customer requirements, then we could be required to increase our inventory write-downs, and our liability for purchase commitments with contract manufacturers and suppliers, and accordingly our profitability, could be adversely affected. We regularly evaluate our exposure for inventory write-downs and the adequacy of our liability for purchase commitments. For further discussion around the supply chain impacts and risks, see “—Results of Operations—Gross Margin—Supply Chain Impacts and Risks” and “—Liquidity and Capital Resources—Inventory Supply Chain.”
Loss Contingencies
We are subject to the possibility of various losses arising in the ordinary course of business. We consider the likelihood of the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss, in determining loss contingencies. An estimated loss contingency is accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We regularly evaluate information available to us to determine whether such accruals should be made or adjusted and whether new accruals are required.
Third parties, including customers, have in the past and may in the future assert claims or initiate litigation related to exclusive patent, copyright, trademark, and other intellectual property rights to technologies and related standards that are relevant to us. These assertions have increased over time as a result of our growth and the general increase in the pace of patent claims assertions, particularly in the United States. If any infringement or other intellectual property claim made against us by any third party is successful, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, operating results, and financial condition could be materially and adversely affected.
Valuation of Goodwill and Purchased Intangible Assets
Goodwill
Our methodology for allocating the purchase price relating to purchase acquisitions is determined through established valuation techniques. Goodwill represents a residual value as of the acquisition date, which in most cases results in measuring goodwill as an excess of the purchase consideration transferred plus the fair value of any noncontrolling interest in the acquired company over the fair value of net assets acquired, including contingent consideration. We perform goodwill impairment tests on an annual basis in the fourth fiscal quarter and between annual tests in certain circumstances for each reporting unit. The assessment of fair value for goodwill and purchased intangible assets is based on factors that market participants would use in an orderly transaction in accordance with the guidance for the fair value measurement of nonfinancial assets.
In response to changes in industry and market conditions, we could be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of goodwill. There was no impairment of goodwill in each of the first nine months of fiscal 2026 and 2025.
Purchased Intangible Assets
The accounting for acquisitions requires significant estimates and judgments in the valuation of purchased intangible assets. Critical estimates used in the valuation of purchased intangible assets include, but are not limited to, the amount and timing of expected future cash flows, useful lives and discount rates. While our estimates of fair value are based on assumptions that are believed to be reasonable, these assumptions are inherently uncertain and unpredictable and would not reflect unanticipated events and circumstances that may occur.
We make judgments about the recoverability of purchased intangible assets with finite lives whenever events or changes in circumstances indicate that an impairment may exist. Recoverability of purchased intangible assets with finite lives is measured by comparing the carrying amount of the asset group to the future undiscounted cash flows the asset group is expected to generate. We review indefinite-lived intangible assets for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired. If the asset is considered impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. Assumptions and estimates about future values and remaining useful lives of our purchased intangible assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
strategy and our internal forecasts. Our ongoing consideration of all the factors described previously could result in impairment charges in the future, which could adversely affect our net income.
Income Taxes
We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective tax rates differ from the statutory rate, primarily due to the tax impact of state taxes, foreign operations, R&D tax credits, foreign-derived intangible income deductions, global intangible low-taxed income, tax audit settlements, nondeductible compensation, and international realignments. Our effective tax rate was 16.5% and 15.5% in the third quarter of fiscal 2026 and 2025, respectively and 15.1% and 5.8% in the first nine months of fiscal 2026 and 2025, respectively.
Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves due to changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, and the related net interest and penalties.
Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. If we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.
Our provision for income taxes is subject to volatility and could be adversely impacted by earnings being lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates; by changes in the valuation of our deferred tax assets and liabilities; by changes to foreign-derived intangible income deduction, global intangible low-tax income and base erosion and anti-abuse tax, research and development capitalization and amortization, and corporate alternative minimum tax laws, regulations, or interpretations thereof; by expiration of or lapses in tax incentives; by transfer pricing adjustments, including the effect of acquisitions on our legal structure; by tax effects of nondeductible compensation; by tax costs related to intercompany realignments; by changes in accounting principles; or by changes in tax laws and regulations, treaties, or interpretations thereof, including changes to the taxation of earnings of our foreign subsidiaries, the deductibility of expenses attributable to foreign income, and the foreign tax credit rules. Significant judgment is required to determine the recognition and measurement attributes prescribed in the accounting guidance for uncertainty in income taxes. The Organisation for Economic Co-operation and Development (OECD), an international association comprised of 38 countries, including the United States, has made changes, including a Pillar Two framework that imposes a minimum tax rate of 15% in each taxing jurisdiction, and is contemplating additional changes to numerous long-standing tax principles. There can be no assurance that these changes and any contemplated changes if finalized, once adopted by countries, will not have an adverse impact on our provision for income taxes. As a result of certain of our ongoing employment and capital investment actions and commitments, our income in certain countries was subject to reduced tax rates. Our failure to meet these commitments could adversely impact our provision for income taxes. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service (IRS) and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse impact on our operating results and financial condition.
41
CISCO SYSTEMS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS
Revenue
The following table presents the breakdown of revenue between product and services (in millions, except percentages):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| April 25, 2026 | April 26, 2025 | Variance in Dollars | Variance in Percent | April 25, 2026 | April 26, 2025 | Variance in Dollars | Variance in Percent | |||||||||||||||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Product | $ | 12,117 | $ | 10,374 | $ | 1,743 | 17 | % | $ | 34,836 | $ | 30,722 | $ | 4,114 | 13 | % | ||||||||||||||||||||||||||||||||
| Percentage of revenue | 76.5 | % | 73.3 | % | 75.6 | % | 73.2 | % | ||||||||||||||||||||||||||||||||||||||||
| Services | 3,724 | 3,775 | (51) | (1) | % | 11,237 | 11,259 | (22) | — | % | ||||||||||||||||||||||||||||||||||||||
| Percentage of revenue | 23.5 | % | 26.7 | % | 24.4 | % | 26.8 | % | ||||||||||||||||||||||||||||||||||||||||
| Total | $ | 15,841 | $ | 14,149 | $ | 1,692 | 12 | % | $ | 46,073 | $ | 41,981 | $ | 4,092 | 10 | % | ||||||||||||||||||||||||||||||||
Amounts may not sum and percentages may not recalculate due to rounding.
We manage our business primarily on a geographic basis, organized into three geographic segments. Our revenue, which includes product and services for each segment, is summarized in the following table (in millions, except percentages):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| April 25, 2026 | April 26, 2025 | Variance in Dollars | Variance in Percent | April 25, 2026 | April 26, 2025 | Variance in Dollars | Variance in Percent | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Americas | $ | 9,569 | $ | 8,380 | $ | 1,189 | 14 | % | $ | 27,403 | $ | 24,834 | $ | 2,569 | 10 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
| Percentage of revenue | 60.4 | % | 59.2 | % | 59.5 | % | 59.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EMEA | 4,054 | 3,736 | 318 | 9 | % | 12,262 | 11,179 | 1,083 | 10 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Percentage of revenue | 25.6 | % | 26.4 | % | 26.6 | % | 26.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| APJC | 2,218 | 2,034 | 184 | 9 | % | 6,409 | 5,968 | 441 | 7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Percentage of revenue | 14.0 | % | 14.4 | % | 13.9 | % | 14.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 15,841 | $ | 14,149 | $ | 1,692 | 12 | % | $ | 46,073 | $ | 41,981 | $ | 4,092 | 10 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Amounts may not sum and percentages may not recalculate due to rounding.
Three Months Ended April 25, 2026 Compared with Three Months Ended April 26, 2025
Total revenue increased by 12%. Product revenue increased by 17% and services revenue decreased by 1%. Our total revenue reflected growth across each of our geographic segments.
In addition to the impact of macroeconomic factors, including the IT spending environment and the level of spending by government entities, revenue by segment in a particular period may be significantly impacted by the timing of revenue recognition for complex transactions with multiple performance obligations. In addition, certain customers tend to make large and sporadic purchases, and the revenue related to these transactions may also be affected by the timing of revenue recognition, which in turn would impact the revenue of the relevant segment.
Nine Months Ended April 25, 2026 Compared with Nine Months Ended April 26, 2025
Total revenue increased by 10%. Product revenue increased by 13% and services revenue was flat. Our total revenue reflected growth across each of our geographic segments.
42
CISCO SYSTEMS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Product Revenue by Segment
The following table presents the breakdown of product revenue by segment (in millions, except percentages):
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| April 25, 2026 | April 26, 2025 | Variance in Dollars | Variance in Percent | April 25, 2026 | April 26, 2025 | Variance in Dollars | Variance in Percent | |||||||||||||||||||||||||||||||||||||||||
| Product revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Americas | $ | 7,375 | $ | 6,125 | $ | 1,250 | 20 | % | $ | 20,731 | $ | 18,075 | $ | 2,656 | 15 | % | ||||||||||||||||||||||||||||||||
| Percentage of product revenue | 60.9 | % | 59.1 | % | 59.5 | % | 58.8 | % | ||||||||||||||||||||||||||||||||||||||||
| EMEA | 3,101 | 2,805 | 296 | 11 | % | 9,434 | 8,417 | 1,017 | 12 | % | ||||||||||||||||||||||||||||||||||||||
| Percentage of product revenue | 25.6 | % | 27.0 | % | 27.1 | |||||||||||||||||||||||||||||||||||||||||||
Recent insider activity
| Date | Insider | Role | Action | Shares | Price | Value |
|---|---|---|---|---|---|---|
| 2026-05-22 | Robbins Charles | Chair and CEO | Sell | -21,400 ×3 | $120.03 | -$2,568,584 |
| 2026-05-15 | Stahlkopf Deborah L | EVP and Chief Legal Officer | Sell | -6,586 ×4 | $117.31 | -$772,580 |
| 2026-05-15 | Tuszik Oliver | EVP, Global Sales | Sell | -2,761 | $114.61 | -$316,438 |
| 2026-05-15 | Patel Jeetendra I | President and CPO | Sell | -7,169 ×4 | $117.28 | -$840,781 |
| 2026-05-15 | Patterson Mark | EVP and CFO | Sell | -5,512 ×4 | $117.29 | -$646,485 |
| 2026-03-20 | Patterson Mark | EVP and CFO | Sell | -4,892 ×2 | $77.97 | -$381,450 |
| 2026-03-18 | Tuszik Oliver | EVP, Global Sales | Sell | -3,132 | $79.74 | -$249,746 |
| 2026-03-17 | Stahlkopf Deborah L | EVP and Chief Legal Officer | Sell | -7,981 | $79.50 | -$634,513 |
Source: SEC Form 4 filings.
Next expected filings
- ~2026-09-02 10-K expected by 2026-10-10 (in 83 days)
- ~2026-11-17 10-Q expected by 2026-12-03 (in 159 days)
- ~2027-02-16 10-Q expected by 2027-03-04 (in 250 days)
- ~2027-05-18 10-Q expected by 2027-06-03 (in 341 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
- 2026-05-26 S-8 Employee Benefit Plan Registration
- 2026-05-19 10-Q Quarterly Report
- 2026-05-13 8-K Earnings Release; Costs Associated with Exit; Financial Statements and Exhibits
- 2026-05-01 8-K Officer/Director Change
- 2026-04-06 8-K Officer/Director Change
- 2026-02-17 10-Q Quarterly Report
- 2026-02-11 8-K Earnings Release; Financial Statements and Exhibits
- 2025-12-17 8-K Officer/Director Change; Shareholder Vote Results; Financial Statements and Exhibits
- 2025-11-18 10-Q Quarterly Report
- 2025-11-12 8-K Earnings Release; Financial Statements and Exhibits
- 2025-10-17 8-K Officer/Director Change
- 2025-09-03 10-K Annual Report
- 2025-08-13 8-K Earnings Release; Financial Statements and Exhibits
- 2025-06-09 8-K Officer/Director Change
- 2025-05-20 10-Q Quarterly Report